Australia ‘captured’ by French submarine contract, shipbuilding board member says

Handing France’s Naval Group the $80bn subs project without a Plan B ‘has effect­ively left the nation captured’.

Defence Minister Linda Reynolds with a model of the Barracuda-class submarine during a visit to Naval Group in Adelaid last week. Picture: AAP

Handing France’s Naval Group the $80bn Future Submarine project without a Plan B has effect­ively left the nation “captured” by the company, the government’s Naval Shipbuilding Advisory Board says.

The board’s Ron Finlay told Senate estimates the government had given up its leverage in its drawn-out negotiations with Naval Group by “down-selecting” to the French option in 2016.

He said as negotiations with the company became bogged down in the second quarter of 2018, the board advised the government to consider dumping the French company.

But Defence said none of the other options, from German, Japanese or Swedish firms, would ­deliver the “regionally superior” submarine that Australia ­required, Mr Finlay said.

Germany and Japan had been knocked out of contention by the government when it greenlighted the French boats, but Sweden’s Saab, which acquired Collins-class builder Kockums, had been kept out of the bid process.

Mr Finlay said Defence also ­rejected the board’s proposal that it “buy time” to look for another option by undertaking full ­rebuilds of all six of the Collins-class submarines. Defence has since revealed that five of the boats will require the so-called “life of type extensions”.

Under questioning by Labor senator Penny Wong, Mr Finlay said the government’s naming of DCNS — which later became Naval Group — as the successful bidder without any alternatives had left it in a difficult position.

“In my experience, many decades of negotiating major contracts, if you do not have an alternative of either going to ­bidder ‘B’ or cancelling the project, yes, you are captured in a negotiation with few options,” he said. “That does increase the number of issues that can become a block to concluding the negotiations.”

However, Mr Finlay also noted that Defence’s risk management process for the Future Submarine program was “one of the best we have ever seen”.

His comments follow years of commentary from Labor arguing the government should have run a competitive design process ­between two of the bidders.

Mr Finlay told the committee that, as negotiations with Naval Group threatened to break down in 2018, the board advised the government to look at other options.

He said the board was concerned the company would be unable to deliver promised sovereign submarine-building capability, upskill the Australian workforce, or maximise Australian content in the boats.

Mr Finlay said the US government requirement that the design of the Lockheed Martin-provided combat system for the submarines not be shared with Naval Group was also a “higher-order risk”.

“Certainly there is a concern from the US about the detail of the combat system being kept confidential from the commonwealth and not being passed across to the Naval Group,” he said. “This is ­inherently a risk.”

However, Defence Minister Linda Reynolds said this was a common risk and “something ­Defence is well used to”.

The committee also heard payments to hotels, French-language schools and other services businesses were considered Australian industry content under Naval Group’s recent commitment to give 60 per cent of its contracts to local firms. The company announced the pledge last week but said it would not make a contractual commitment to the target for another two years.